What is B2B? What is B2C? When starting a B2B or B2C business model, it is best to know which is best, B2B or B2C. Each one of them has its own advantages and disadvantages. Having known the benefits that you will derive from each one of them, it can help you decide which of the two business models to adopt.
Business to business (B2B) is a business model that involves transactions between businesses. For instance, it can be between a manufacturer and a wholesaler or a manufacturer and a retailer. The transactions do not involve companies and individual consumers. These days, B2B ecommerce is a growing field in B2B ecosystem.
Business to consumer (B2C) is a business model that involves transactions between businesses and consumers. The consumers are usually the end-users. This means that businesses sell products and services directly to consumers. There are a number of B2B advantages and disadvantages.
Advantages of B2C
The following are some of B2C advantages.
- Low costs of doing business. A B2B business usually has less overhead costs since there are fewer employees, less data entry and fewer phone calls.
- Reduced sales cycle. B2C has a shorter sales cycle because consumers are the final decision-makers. They do not need to consult anyone to make a decision.
- Easier business administration. It is easy to administer a B2C business since it is small and does not involve a lot of work. You also do not need much experience or skills.
- Eliminates third parties. With a B2C business, you do not need third parties since you at liberty to sell products directly to the customers.
Disadvantages of B2C
B2C disadvantages include the following.
- Competition. B2B business faces stiff competition since there are thousands of other businesses in existence and millions of brands.
- Limited product exposure. B2C businesses do not take part in heavy product promotion. As such, their products and services do not get a lot of exposure to customers.
Advantages of B2B
- More sales. One of the advantages of a B2B business is increased sales because businesses sell products to other businesses on large scale.
- Newer markets. B2B businesses are usually in a better position to reach new markets through marketing.
- More efficiency. B2B businesses can integrate sophisticated software like ERP system in their operations. This leads to more efficiency and productivity.
Disadvantages of B2B
- Higher operational costs. B2B businesses need to put in place systems and employ qualified employees. This makes it expensive to start and run a B2B business.
- Limited market. B2B businesses depend on large corporations to buy from them. There are only a few numbers of such corporations which limits the market for B2B businesses.
- Long sales cycle. It takes a long time to make sales for B2B businesses. This is because there are many departments that are involved in decision making and each must approve the purchase.
B2B Vs B2C Business Models
Price models. In the B2C business model, businesses sell products and services to customers at the same prices. Prices are not greatly affected by discounts. Discounts offered to customers do not vary a lot in most cases. In the B2B business model, businesses sell goods and services to other businesses at varying prices. B2B business are given varying discounts depending on quantities and frequency of orders.
Which is Best B2B or B2C?
If you are wondering whether to start a B2B and B2C business, you may want to know which of the two is best. B2C is easier to start since it is not capital intensive compared to B2B. On the other hand, if you have lots of experience, you can also consider B2B. You need to have built some relationships with other businesses for B2B to work. You may also need more skills to start B2B. In terms of profitability, B2B is more profitable with a good customer base compared to B2C. Many people start with B2C and then expand their business to B2C.
B2B Compared to B2C
There are several differences between B2B and B2C. The following are some of the differences.
Different market targets
B2C has a large market target and there are many businesses to transact with. Most B2C businesses need to specialize on a particular niche.
On the other hand B2B businesses often have a smaller market and sell more specialized goods.
Different customer needs
In the B2B market, consumers do not understand a product and they need to be educated about it. Customers make purchases based on personal trust. As such, businesses need to develop trust with the consumers. They also need to see that investing in your product will give them a return on investment.
For B2C, customers want to be entertained and businesses need to invest a lot in marketing and building a brand image. Customers do not consider a return on investment but they want a brand that is good and gives them value for money.
For B2B businesses, there is usually a longer sales cycle because there are many people who need to approve the buying decision. Also, there are accounting departments that need to approve a purchase.
For B2B businesses, the sales cycle is usually shorter since the customer is the final decision-maker. Once a customer is convinced to buy a product, he can make a payment immediately. If the customer likes your services, he or she is likely to stick to you.
What to Consider When Choosing B2B or B2C?
Neither of the two businesses is inherently better than the other one. It depends on a few factors like experience, skills, capital and market size. To decide which of the two to start, consider the following:
When B2B Works Best
B2B can work best if you have worked in a company and have experience and have built relationships with other businesses. You need to know how a B2B business works and how decisions are made. Also, if you have enough capital, then you can consider starting a B2B business. That way, you can come up with a solution that solves problems in the market.
When B2C Works Best
If you have limited capital, skills and experience, it is best that you start a B2B business. However, you need to understand your customers in terms of why and when they buy products. This way, you will be providing goods and services based on customer needs.